Top venture capital trends in 2013

Superstitious types would have one believe that 13 is the unluckiest number. But for the venture capitalists, 2013 turned out to be a pretty good year.

There was plenty of favorable fortune to go around for an industry that’s suffered many disappointments in recent years. The IPO market was back on track. Life science investors saw a sharp uptick in big exits. And cash distributions to limited partners – considered by many the clearest measure of venture returns – were among the highest in a decade.

The year brought plenty of disruption, as well, which is something VCs tend to welcome more in the investments they target than in their own industry. A few high-profile departures and new hires spotlighted how the industry’s established leaders are giving way to a new set of up-and-comers. On the fundraising side, meanwhile, the Securities and Exchange Commission’s approval of lifting of the ban on general solicitations means venture firms and portfolio companies may now publicly discuss plans for raising capital.

In many cases, industry trends took even VCs by surprise. Few predicted the sharp rise of bitcoin, though venture investors were quick to recognize the recognize opportunities tied to the alternative currency. Hardware investments, long out of favor in venture circles, also gained broader appeal, juiced by 3D printer-maker MakerBot’s high-return exit.

VCJ took a look at the top trends and developments impacting the venture business in 2013. Agree or disagree? Either way, we welcome your feedback. (To see a full look at VCJ‘s top 13 trends in 2013, subscribers can go here.)

And here’s hoping good fortune will carry forward into 2014.

1. IPOs are back

The IPO window remained wide open in 2013, enabling a number of high-profile venture-backed companies to make a long-awaited exit. Leading the pack was Twitter, which raised nearly $2 billion in a November debut that marked the biggest social media offering since Facebook. The stock has performed well post-IPO, too, with shares up about 20% in mid-December from their initial closing price.

Twitter was certainly not the only successful offering. Standout performers include FireEye, a security software provider, and Tableau Software, a developer of data visualization tools.

2. Ban on general solicitation lifted

Raising money for a new venture capital fund has long been a quiet business. Many VCs like it that way, preferring to shine the spotlight on portfolio companies. But regardless, it was also a matter of law, enshrined for nearly 80 years in a Great Depression-era regulation banning public solicitation of investments for most private securities.

Those rules no longer apply. In the summer, the Securities and Exchange Commission gave the green light to provisions of the 2012 Jumpstart Our Business Startups (JOBS) Act that allows firms to publicly talk about fundraising, even for vehicles that are open only to accredited investors. In September, the new rules took effect.

So far, there’s been no great rush of venture fundraising announcements. One exception was ff Venture Capital, which announced on its blog in October that partners are in the market for a new fund. In the post, Founding Partner John Frankel said the firm made the move because “someone has to be willing to be the first firm to step forward and be willing to share performance data, publicly announce that they are open to new investors (albeit only accredited investors) and share their story.”

3. Crowdfunding era comes closer

The lifting of the ban on advertising to attract private market investors has also changed the playing field for startups. Under the new rules, private companies can now ask for dollars from accredited investors through tweets, Facebook posts and website ads. Previously, such private companies largely would have been limited to investments from friends, family and venture firms.

Scores of websites have sprung up to connect budding financiers with struggling entrepreneurs who are eager to tap new sources of cash and close funding rounds far more speedily than under the traditional venture model. AngelList, for instance, took the wraps off a new type of investment vehicle, a syndicate, where one angel investor leads a group of accredited investors. CircleUp, a funding site for consumer products startups, opened up some of its listing for non-accredited investors to peruse, even if they can’t invest.

That may change soon too. Eventually, more investors will be allowed to make small investments in private companies under the crowdfunding provision of the JOBS Act. Those new rules could take effect as early as 2014.
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